Cattle prices strong on high demand, low supply

The prices U.S. farmers get for beef cattle dropped sharply after the report of a deadly cattle disease last winter. But only five months later, prices are high. The cattle business, more than anything else, is about supply, demand and timing.

U.S. cattle prices dropped about 16 cents per pound right after the report of a single case of bovine spongiform encephalopathy, known widely as mad cow disease, in Washington state late last year.

“The case of BSE shocked the market a bit, but only for a short while,” says Curt Lacy, a livestock economist with the University of Georgia Extension Service. “Prices have since rebounded.”

Prices are actually higher now than they were in the same month last year.

Cattlemen are getting about 92 cents per pound for animals that weigh 1,100 pounds. Around this time last year, they were getting 78 cents for the same size. Prices peaked at $1.09 per pound in mid-October.

Georgia cattlemen now are getting about $1.05 per pound for 500- to 600-pound cattle. They got about 85 cents per pound around this time last year.

Very few cattle are slaughtered in Georgia. They're shipped at a lower weight to the Midwest and the Plains to be fed and slaughtered in facilities there.

If the BSE scare had happened several years ago, it may have had a bigger and longer impact on beef cattle prices, Lacy said. The U.S. cattle herd is low right now. This means that the beef supply is low.

The U.S. cattle industry has a rhythm. Cattle prices and herd size fluctuate in a cycle that usually starts and finishes every 10 years or so.

It can be complicated to understand completely. But simply put, when the supply of beef is higher than demand, the price of slaughtered cattle goes down. When this price goes down, the price for calves goes down. To maintain an income with less overhead, cattlemen begin to liquidate herds until the beef supply is less than demand and prices go up.

When prices begin to rise, they stop liquidating and begin to rebuild herds.

The current cycle started in 1990 when cattlemen began to build herds. It should have long finished. The herd size began to decline around 1996 when prices tanked.

But extended drought periods since then have parched pastures all over the country and kept cattlemen from rebuilding herd sizes. The cycle won't be complete until they do.

None of this happens overnight. The biology of cows plays a big role in the cycle.

If cattlemen began today holding back cattle from market and buying cattle to rebuild herds, Lacy says, it would still take about three years before the effects were felt in the market. A rebuild would initially spike prices even higher.

There is some indication that the rebuilding has started, he says.

Demand is high for U.S. beef despite bans in Japan and countries in South America. (Mexico has started buying U.S. beef products again.)

The beef that wasn't bought by these countries remained in the United States, increasing the supply. This would seem to lower prices. But it hasn't.

U.S. citizens like U.S. beef and eat about 90 percent of the total production. The United States produced about 26 billion pounds of beef in 2003.

Only 10 percent of the U.S. production goes to other countries. Japan, the largest buyer, gets 3 percent.

The demand for U.S. beef began to decline in the early 1980s, soon after health studies reported that too much red meat could be bad for health. But with catchy commercial slogans and a more healthful image, beef has regained a prominent place at the table.

In 1980, the U.S. per-capita beef consumption was about 76 pounds a year. It has averaged around 66 pounds per year since 2000.